Macquarie takes ‘quality yield’ approach for Cup

Dividend stock strategies can wait. Today, there’s no shortage of analysts using their Excel spreadsheets to pick a winner for the Melbourne Cup.

And to be perfectly frank, there’s one in particular everyone really seems to be hanging out for – Macquarie Group.

For good reason too: their record at picking winners is pretty good. Quant analysts John Conomos and Francis Lim have picked the winners for the past three years and are looking to go four-in-a-row. We’re big fans of their equities stuff too.

■ Before we get into the nitty-gritty, this is what they’ve come up with this year. Macquarie’s preferred method is to implement a box trifecta on the top six horses in the model. The top-ranking horses are, with their odds as at 6pm AEDT on Monday:

Related Quotes

Company Profile

■ For those looking at picking the bottom ranking “donkeys" (they’re not really donkeys):

Unusual Suspect ($251.00)

Tax de Boistron ($51.00)

Winchester ($51.00)

Zabeelionaire ($51.00)

Precedence ($101.00)

Niwot ($51.00)

■ Macquarie tweaks its quant model each year.

Last year, for instance, the high Australian dollar attracted a lot of foreign horses. There are still a lot of foreigners in the field this year, so the $A ‘form factor’ remains in this year’s model.

But this year – a year in which the equity market has flocked to yield amid uncertain economic conditions – Macquarie is similarly taking a more yield-related approach to the model.

“Looking at the yield calculated from the odds doesn’t make sense as this would tilt towards the horses that the market perceives to have the least chance. Instead, as we suggest for equities, we look for a “quality yield" measure and calculate a yield for the horse’s owner. Average prize money per race," Macquarie says.

“Dunaden comes out on top with Kelinni, Maluckyday and Lights of Heaven close behind. Our favoured approach to betting is a two-pronged approach. First,a bet on the top horse and then going for the trifecta using the top quartile of horses. This best mirrors the way we (quants) approach equity investing."

■ As with all the brokers and economists, they’re just applying their skills in their day jobs to the Melbourne Cup. So even though Macquarie have a good track record, the disclaimer – as with everyone – is that it’s a bit of fun.

Macquarie ran the Melbourne Cup model for the first time in 2007, with a box trifecta on the first six horses paying handsomely. The cumulative profit on an annual $1000 investment in the win/box trifecta quant strategy would now be $12,000. Pretty tidy.